Why An NDA Is Not Enough To Protect Your Ideas

Your company was founded to take advantage of ideas — but you will likely need help to execute your plan for monetizing those ideas. You may search for a canned Non-Disclosure Agreement (NDA) off the internet and plan to ask others to sign that before you disclose your ideas to them. An NDA is a good start, but if that is all you rely on to protect your ideas from being stolen, you might be at risk of losing everything.

What is it?

The NDA is designed to protect secrets, specifically trade secrets. A trade secret is a kind of intellectual property – It’s treated as an intangible asset that the state and courts are willing to help you protect, under the right circumstances.

The legal definition of a trade secret has two parts.

First, the intellectual property you want to protect must be something that derives independent economic value from not being generally known by others who could obtain economic value if they knew about it. Your wife’s natural hair color may be a secret, but it’s unlikely to have any economic value to others if they found out. On the other hand the formula to Coca-Cola would be of tremendous economic value to anyone who learned of it.

Second and just as important, the intellectual capital you want to protect must be the subject of reasonable efforts to maintain its secrecy. Simply said, if you have a secret, you have to keep it secret! You can engage an electrical engineer and an independent contractor to design your secret gadget and have them sign a NDA. But if you tell your inner circle of best friends about it too, the gadget isn’t much of a secret. If your independent contractor learns of the secret gadget through someone else who is not bound to secrecy, your NDA with that independent contractor becomes worthless.

According to lawmakers and the courts, “reasonable efforts” include advising employees which ideas within the company are trade secret, limiting access to trade secrets on a “need to know basis”, and controlling access to trade secrets — which means keeping any written description of your secrets under lock and key. Don’t print your customer list — one of your most importance trade secrets — and leave it in the photocopier.

What “reasonable efforts” boil down to is that you need a plan of how you are going to keep your valuable ideas a secret. Your NDA is an essential part of your plan, but not the only part.

Treat the ideas within your company as valuable property. When the people you work with — employees and contractors — see that you value ideas, they will be more willing to help you protect those ideas.